Mortgage Mayhem: The New Reality of Interest Rates

Get ready to rethink your mortgage strategy.

In this episode, Kim and Polly are joined by Monique Cornish, a mortgage broker affectionately known as "Magical Monique”, exploring how recent rate hikes have dramatically shifted the home buying landscape, slashing purchasing power and reshaping financial strategies.

With 19 years of industry experience, Monique demystifies the impact of fluctuating interest rates, explains the nuances between adjustable and variable rate mortgages, and shares valuable insights on porting, refinancing, and the significance of mortgage insurance.

This engaging discussion not only highlights the importance of staying informed but also provides practical advice for navigating today's volatile mortgage market.

Listen For:
04:11 - Variable vs. Fixed Rate Mortgages
09:58 - The Role of Media in Mortgage Misconceptions
11:16 - Adjustable-Rate Mortgages Explained
20:00 - Porting Mortgages: Is It Worth It?

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Connect with Guest: MONIQUE CORNISH, Mortgage Consultant
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KIM TAYLOR – Rennie & Associates Realty
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POLLY REITZE – Engel & Völkers
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Transcript

Kim Taylor (00:01):

Hey, so I want to share a real life story that highlights the impact of the recent rate increases on home buying power. Two years ago, one of my clients was pre-approved for a substantial amount, 4.2 million, and they were excited and they were ready to find their dream home. And fast forward to today after multiple rate hikes, that same client's buying power has dropped significantly. Now they can only qualify for 3.2 million. Yes, still a lot, but they lost $1 million of buying power in two years because of those rate increases.

Polly Reitze (00:40):

That's incredible.

Kim Taylor (00:41):

So this dramatic change underscores just how much the market dynamics have shifted and the importance of staying informed and adaptable. Luckily, today we have a guest on the show, Polly.

Polly Reitze (00:55):

I know she's great.

Kim Taylor (00:57):

Monique Cornish, who is going to help us understand this a little bit better.

Polly Reitze (01:02):

Oh, absolutely. She's going to put it all in line for all of us.

Kim Taylor (01:17):

All right. Welcome back. We have a very special guest today, don't we, Polly?

Polly Reitze (01:23):

We do. Hi,

Kim Taylor (01:23):

How are you? Hi. We have Monique Cornish from the Mortgage Group. Monique is my Go-to mortgage broker, so she is who I like to refer my clients too. I actually call her magical Monique, the mortgage broker. She is so good. That's a good title, right? She is so wonderful. She gets it done. She's very creative. She is just also a wonderful person. There's that too, too. Thank you. And she's been in the business 19 years. She just celebrated her 19th year, right?

Polly Reitze (01:59):

Yep. Congratulations.

Kim Taylor (02:01):

Yeah. Welcome, Monique.

Monique Cornish (02:02):

Thank you so much. Thank you for having me. This is so fun. Yeah, thanks. This is my first podcast. Yeah, I'm excited. Cool.

Kim Taylor (02:08):

We're very excited to have you. Well,

Polly Reitze (02:11):

Welcome aboard. Thank you very much.

Kim Taylor (02:13):

Yeah. Oh yeah. We got some great questions for you today. Excellent. So Monique's here today to talk to us about what is going on with interest rates, what's happening in today's market, how is it affecting you? How is it affecting other households? So Monique, and of course there's a big announcement coming tomorrow from the Bank of Canada. It was, yes, it

Monique Cornish (02:42):

Be big

Kim Taylor (02:43):

Or nothing, or it'll be nothing. Any announcement's going to be little and big means like, yeah, a little change, but could do big things, right? Yeah, yeah, very true. Monique, how will that affect, how will the Bank of Canada's overnight rate affect mortgages, mortgage rates?

Monique Cornish (03:04):

Yeah, good question. So as you just pointed out, there's a rate review that's going to take place tomorrow. Many economists, at least up until very recently, most thought we'd see a rate reduction Tomorrow, we may some still believe that there's a two thirds chance that we will, and others are saying there's a two thirds chance that we won't, and we'll have to wait for July. But to answer your question, specifically, the Bank of Canada, they control their target overnight rate, and all the financial institutions in Canada base their prime lending rate on the Bank of Canada's target overnight rate. So right now, the Bank of Canada's overnight rate's 5%, and the prime lending rate's 7.2%. So there's a 2.2% spread there. What's going to happen tomorrow is, well, what we think is going to be one of two things. Either the Bank of Canada is going to lower its target overnight rate by a quarter of a point, which would be down to 4.75%, or they're going to do nothing.

(04:11):

I don't think there's any chance that the rates are going up. That's not where we're at, thankfully right now, but we shall see. So if the Bank of Canada does decrease their overnight rate tomorrow, then what we're going to do, we're going to see two types of, I'm going to call it home lending products rates change. We're going to see variable rate products change because variable rate products float with all the bank's, prime lending rates, and we'll see home equity lines of credit rates change and otherwise known as HELOCs. So I think there is, I'm going to do a little tangent. There is, I think a little bit of misinformation out there in general about some rates. A lot of people think that the Bank of Canada controls all the mortgage rates. They only control rates that float with the prime lending rates at the bank.

(05:08):

So all the fixed rate mortgage products that exist in the marketplace, 1, 2, 3, 4, 5, 7 in 10 year terms, these products are affected by bond yields. And this is an entirely, I mean, they've got some correlation, but bond yields affect fixed rates. And so generally you get a bond at a certain rate. Then there's generally a spread, and that spread and the bond yield rate, that basically determines what fixed rate mortgages are at in times of more volatility. For a rate perspective, the banks look for a higher spread, so then rates are a little higher, but that volatility has come down a bit. So we're seeing fixed rates right now generally be 1% less than variable rates. So a lot of people realize that, and they're still holding on to the Bank of Canada and seeing what they're doing, but really they should be focusing on the other half of rape products that are out there.

(06:08):

So I'm sure we'll chat about that too, but I wanted to make that little distinction an important one. This is an unusual time because usually in the past when variable was very much in favor, consumers took on a little bit of risk for the reward. And the reward was usually variable rates were lower than fixed rates for years. And so that was, you take on the risk of, yes, variable rates were very much in favor and that there's been times when there were one and a half percent difference or more in fixed versus variable. Right now, we're not seeing that because we've seen bond yield fall. So since last October, so October, 2023, we've seen bond yields fall by about 1% up until now. So let's say eight, eight-ish months or so. In that same time, we've seen no changes with the Bank of Canada. So this is the reason why we're seeing fixed rates right now do better, perform better than variable because the bank account has been sticky to lower their overnight rate, while at the same time bond rates have fallen in a response to some inflationary figures that have dropped and other things going on in the economy.

(07:28):

So that's

Kim Taylor (07:31):

Okay. Interesting. Yeah, so a lot of people think if they, as soon as a rate reduction comes big or small, that will open the floodgates for all those buyers sitting on the fence. And maybe it will, in terms of buyer confidence, will be back. People will be feeling more comfortable, but it really won't change fixed.

Monique Cornish (07:55):

No, it's not going to. And I think that's some of the challenge that's there is, and then I don't want to call it misinformation, but misunderstanding I'll say is so many people are waiting for news from the Bank of Canada when really we need to be looking for sure the news of the Bank of Canada. That's important because what the Bank of Canada does is an indicator of the economy and where things are headed and where they want things to go, but other, there's a whole other segment of rates that are out there and something that impacts those rates or bond yields, and there's been very little media attention drawn to that. In fact, I don't think the media has done a particularly good job about discerning between a fixed and a variable rate, what contributes to those rates and how that's impacted. For example, if we've seen a 1% drop in fixed rates since last of October, you can imagine that now those qualifying rates have dropped by a percent.

(09:02):

So anyone wanting a fixed rate today is going to qualify for more mortgage dollars than they did last October. They're also going to, for the same mortgage dollars, they're going to be paying lower payments and affordability, generally cashflow with a fixed rate. So the media's done not a great job of highlighting that as well. And you're right, it seems like there's a whole lot of attention on the Bank of Canada what's going to happen. Well, that's again, it's affecting variable and HELOCs, which clearly is going to have an impact to people who are already in variable rate mortgages. Definitely. Or new people. Exactly. But for new people looking to get into the market, I think that we need to pay attention to where fixed rates are at and what those can do for people now versus let's say last

Kim Taylor (09:58):

Fall. So interest rates started to go up March 3rd, 2022. Yep. I got this from your notes.

Monique Cornish (10:06):

Thank you. Yep, yep, no problem. So

Kim Taylor (10:09):

What's happened since then and what have the implications been? All of these rate increases, what are you seeing?

Monique Cornish (10:18):

So for people that have been in variable rate mortgage products, and I'm going to quickly make a distinction between two types of variable rate mortgage products. There's actually two I'll call 'em kinds. One is an adjustable rate mortgage and one is actually called a variable rate mortgage. And so the impacts to those individuals that have been in, I'll call it a prime floating product, have been a little bit different. And I'll touch on that first and then we can get into some other kind of impacts. But adjustable rate mortgages are products that when the prime lending rate changes, your payment also changes, it adjusts, and that's the adjustable rate mortgage elements. So it adjusts with changes in prime. If prime drops, your payment's going to drop. If prime increases, your payment will increase. And the reason for that is you start off with a certain amortization for the loan, let's say it's 30 years.

(11:16):

And so in order for that loan to properly amortize over the 30 years when you've got changes in the prime lending rate, you've got to adjust your payment to coincide with the rate change in order to maintain that amortization. So that's the adjustable rate mortgage. A variable rate mortgage is one where your payments are essentially fixed. They're static for the term of the loan, they'll only increase, so you'll only get a call from your mortgage lender to have those payments change. With the variable rate mortgage, if you start to get into what's called negative amortization, where the rate of interest has gone up to the extent where the payments that you're making don't even cover the principle, and they're not even covering all of the interest. That's called the trigger point. A lot of

Polly Reitze (12:06):

People hit that, didn't

Monique Cornish (12:07):

They? So yeah, last year, yes, they did. And so some banks have forced people to make, I'll call it a hefty principal portion, like increase. Some have asked people to make lump sum payments. Most banks though, have been somewhat reasonable and have said, you know what? You need to at least be making the interest only on this and make 50 bucks towards principal, let's say, just so that you're not actually into full on negative amortization to the point where someone's going to end up with an 80 or amortized mortgage at the end of the day, just because we started off with a rate that was so low, it's gone up by 4.75%. Just imagine your payment stagnant during that time. So it's tricky. So to get back to your question, those in adjustable rate mortgages, what have they felt? As you can imagine, they've gone 4.75% higher in their rates, and now if their payments adjusted, now they're feeling the pinch. They pay three times.

(13:19):

For a lot of these people, they are. And so it's interesting to see what creative measures consumers are taking. And the calls that I'm getting, some people are asking me if they can refinance into a fixed rate because fixed rates are 1% lower. The variable now, and if they're on a 28 year amortization, they can bump back up to 30. So that'll lower their payment and they can take a rate that's 1% lower, that'll lower their payment. So instead of enjoying the benefits of what they thought a variable rate mortgage would offer them, they're now faced with wanting to refinance into a fixed rate just to get a lower payment. Wow. So that's

Polly Reitze (14:00):

Finding, they're taking shorter terms like a two year versus a five year.

Monique Cornish (14:04):

Yeah. Yes. So the most popular fixed rate, the term right now is a three-year term. There's a few reasons for that if you want, I can get now, we can save them, but Sure. So yeah, three reasons. So one is the one and two year terms are still fairly high terms of rates versus the three year. So they're not palatable because they're generally over 6%. And when you can get a product for five, a little over five, you start to dismiss the one in the two year. Unless you've got something concrete in your life that I'm only going to need this for one year and I'm willing to pay a little bit of a premium, then fair enough. But that's not the norm. The other reason for the three year being most favored is the three, the four and the five year are very comparable, and it comes to rate.

(15:10):

So in a decreasing rate environment where we're thinking that rates are going to fall further and we do on the fixed rate side as well, then what your goal should be is to try and get the shortest term possible for the lowest rate possible. And that's the three-year term today. So that's the second reason why someone may take a three-year term. A third reason is because if the rates between a three, four and a five year are very comparable, and we're in a decreasing rate environment, and you think, well, I don't want to go really long-term because I may want to refinance out of this product in a year, maybe year and a half when the rates have hopefully bottomed out, fixed rates have bottomed out. And so if I'm paying 5.3% today for, let's say for example, a three or fixed rate, and in a year and a bit time, it's down at four point quarter percent.

(16:08):

I want to be able to leave my three year product at that point and pay as little a penalty as possible to get out of that product and into, let's say a new three year might even be a new five year at that point. But the problem with taking a longer term fixed rate right now is the interest rate, differential penalty to get out of that product when you are only a year to two years into that product very high is going to be much higher than it would be if you were in a three year product. So that's the other reason for me, I'm kind of discussing the three year with my clients and I'm not alone in that. Yeah, I think most brokers are recommending a three year. Really, the only reason, why'd, in my opinion, why you'd recommend a five year fixed rate today is if the five-year money, let's say is 4.99%, and you can get a three year for 5.3 and your debt service ratios are right on the approval line, and you can't get approval with a three year because the qualifying rate's going to be 7.3% rather than 5.3.

(17:20):

And so now you can just squeeze in with the five year because the rate is 4, 9 9 and I'm qualifying at 6, 9, 9. Those are the types of reasons I'd be going for a five year. But other than that, I don't think you're doing your client a service by recommending anything longer than a three year term today. Good

Kim Taylor (17:39):

Information. And are you seeing people porting their mortgages right now?

Monique Cornish (17:43):

Yes. So I am. There's a lot of questions about porting and porting by definition, by concept. It's a great idea. You should absolutely want to do it. In fact, if someone was even in a product and they were wanting to sell their home and they're wanting to, let's say they're originally from England and they're going back to England, I mean, I'd want to see if I could assume their mortgage as well because that's a whole other thing. But in terms of porting, yes, there's lots of questions. Banks treat ports differently. A lot of people think that porting mortgage is just changing the address, and in years past, it almost was that simple, but it's not like that anymore. When you port a mortgage, essentially you're applying for the portion of the mortgage that's remaining the balance remaining with the term that's remaining at that rate.

(18:43):

So instead of applying for a brand new mortgage at today's rate, with an even year term, like a three year, you might be porting something like two years and two months remaining, 380,000 left on your mortgage at let's say the 1.59 or whatever. But you're still having to qualify for that mortgage with income and credit and the property. So not just a matter of taking that mortgage and moving it to another property, it's truly requalifying. But for a lot of people, it's very much worth it. And I'm encouraging people to consider porting their mortgages. Even if they're buying another property and they need to add another $200,000 to their mortgage, it's probably worth it to say, I'm taking three 80 at 1.59 and it's got two years and two months remaining, and I'll just take the extra 200,000 or whatever it is at today's rate. The lender will blend it out. Interesting. And depending on how they do it. So porting is absolutely a good question. And any consumer that's selling and buying another property and having one of those beautiful rates from 2020 and 2021 should be contemplating porting. Do you

Polly Reitze (19:56):

End up with two different mortgage payments, your porting part or

Monique Cornish (20:00):

Your Great question. Great question. It depends on the lender. So a lot of lenders will do what's called a blend and increase, and you'll end up with kind of a blended rate, just kind of what I was saying before. Let's say 380,000 at 1.589% with this many months remaining X months remaining, and then another 200,000 at 5.3%, and then the lender will calculate what that blended rate is. That's one. So that's one to your point though, a lender, for example, like Scotiabank, they may say, we're going to take your three 80 and your remaining amortization. We're going to take that mortgage just exactly as it is intact, and you are going move that over to the new property with approved credit and income and any new money that you need. We're going to create our own little new tier, our new little mortgage product with any mortgage product that you want to combine with that ported one, and you are going to end up with two payments. Interesting. So it really depends on the lender and how your product was kind of set up from the get go and the

Kim Taylor (21:11):

Data was set up as well. I mean,

Monique Cornish (21:13):

You can round it up or down, but yes, and that's another point too on the porting issue is some lenders will have a 90 day port policy where you've got 90 days from the date that you complete on the sale of your existing home to the date that you need to complete on the new property to be able to port that mortgage. So that's the most generous timeline some lenders will give you one day, oh my, it's got to happen. And so really you've got to have a dovetail sell and buy situation where they're happening almost on the same day in order to port. So yeah, there's a lot of kind of obviously creative solutions, differences between lenders and Yeah, exactly.

Kim Taylor (21:58):

So what would be the benefit of somebody going to see you or another mortgage broker versus going to their lender? What would be the benefit of using a mortgage broker?

Monique Cornish (22:12):

Right. Great question. And it's one where I think it's about product diversity, and I think it's about expertise. So if I am a lifelong RBC client and I go to my RBC branch or mortgage specialist and I've got some little thing that doesn't quite fit the box, and for whatever reason I get declined, or I might be told, Hey, you know what? You want a mortgage of 600,000 to buy this property, the numbers don't work, and we can give you four 80. And all of a sudden it's like, okay, well now does that work for me? What's nice with working with a broker is that you've got a myriad of products and lenders that we've got to work with. And so if one doesn't tend to work because of their own lending guidelines or policies, we can take it somewhere else. And it's not necessarily saying We're going to take you from a bank to let's say, an alternative lender.

(23:15):

It could just be, for example, we've got some local credit unions who treat basement suite rental income in a very meaningful way because they understand the market here. They understand that most many people that have detached homes, we've got suites, we rent them out, and the vacancy rates for those are extremely low. So what they'll do is they'll take a way larger portion of basement suit rental income to help you qualify where the big banks don't do that because all their policies generated out of Toronto. As an example, I go to one of the big banks and I am told we can't give you an $800,000 mortgage to buy this attached home. We can give you five 80. Whereas I might be able to go to Lender Lake, blue Shore Financial, and they will take 90% of that rental income from a suite and they'll use it to offset mortgage payment. And it has an amazing impact.

Kim Taylor (24:06):

That's real having income. It is real income.

Monique Cornish (24:08):

It is. It is. And absolutely. And that just having a lot of tools in the toolbox rather than just one is important. And then also I think a lot of people don't know how to present their own mortgage application to a lender. And for a lot of mortgage files that are a little trickier and they don't quite fit the box perfectly, a broker has a better ability to structure and present that mortgage file than a borrower on their own. Because we know we understand the lending guidelines, the policies, and we can work within those and chat with lenders and say, well, would you accept an application submitted in this way rather than this way? And if they're willing and say, yeah, we can get around and we can work with that, that's really powerful. Whereas someone on the wrong, they're not going to know that question to ask to begin with. Yeah,

Kim Taylor (25:01):

Absolutely. What are the big banks that you wouldn't have access to?

Monique Cornish (25:08):

So RBC has their own mortgage specialist channel. They've never participated in the broker community, so they're one HSBC's now been bought out, so they don't exist to us anymore. So Scotiabank TD are big lenders of ours. BMOs come back into the broker channel. Oh,

Kim Taylor (25:30):

Really? Okay. Yeah.

Monique Cornish (25:32):

CIBC had a big presence in the broker community at one point, and they actually had their own branded company called FirstLine Mortgages, but they closed that probably 10 ish years ago now. And some of the banks that haven't really embraced and run with having a broker division, some of them haven't because they haven't sorted out a model that works, but others haven't because sometimes it's tough on their sales from the broker side, because we kind of hold them to account as well. We know what rates are out there in the marketplace. So sometimes it's really difficult for them to honor being very transparent with rates and products with the broker channel, and also doing the same thing at the branch level, because really you should have an even playing field with some of the big band lenders that we deal with. We can often get better rates than what you can at the branch level just because we understand the pricing timing of that pricing, making requests for exceptions on rates, that kind of thing. Whereas you're not going to know that as a consumer, you're going into the bank. But R-B-C-C-I-B-C are the ones that we don't have access to and HSBC because they were swallowed up. But what we do have is credit unions. What we call in our industry is monoline lenders. So lenders that are not brick and mortar mortgage lenders, but that make up a very large portion of residential mortgage lending in Canada through the broker channel. And of course, we also have e lenders, alternative lenders and private lenders.

Kim Taylor (27:27):

And sometimes you need those because sometimes it's not easy and they don't have two years worth of income to show, or some of their income is coming from a different country, or these are all of the things where, this is why I call her magical monique. She's very crafty and creative and yet obviously still above board and just gets it done

Monique Cornish (27:53):

Well. And that's the balance. It's a matter of figuring out what the lending guidelines are, knowing them and knowing which ones you can push a lender a little bit and where they're willing to give an exception. There's a relationship there, and they trust that your business is good and clean, and so they're willing to make some exceptions. And also knowing where there is a fine hard yes or hard no, and moving on to another lender if you get that. But yeah, you're right. In fact, today I would say more than ever people, for example, like you just said, someone who's, that's a very big segment of our Canadian citizens to begin with, but they want to have a home too. And they don't all sell

Kim Taylor (28:44):

They deserve,

Monique Cornish (28:45):

Like you and me, they really do. No, they do.

Kim Taylor (28:48):

But yeah, I guess it's tough, right? For

Monique Cornish (28:50):

Sure. And there's so many more self-employed people, contractors, and it's been interesting to see how the number of applications that are going to what we call B lenders, so lenders that aren't taking traditional income verification, we're looking for different types of income verification that can show the ability to pay the mortgage payments, but they're not reliant on income being on tax returns that's high enough to service a mortgage. And that's usually the challenge that self-employed people have. Yeah,

Polly Reitze (29:22):

They make it hard. Those big banks make it very hard for self-employed people. For

Monique Cornish (29:27):

What reason's? Not easy. A lot of it's federal regulation. Most of it, I would say recently is federal regulation. I think in the last seven to eight years, the amount of regulation that the big banks have had to undertake and adhere to has been greater than they ever have before. I remember when I started 19 years ago, each bank had policies that were quite different from each other. So if you had a certain mortgage file that had certain characteristics, there is usually one bank that would stand out and you'd be like, yep, this is a lender for this because they do this. And I think the banks to a certain extent enjoyed that because it gave a nicer balance of competition. But because in the last seven or eight years, we've seen so much regulatory change and now the Fed OS fees now saying, well, you can't do this. You can't have this program, and we're going to audit this program and make sure that we're comfortable and that you're collecting the right amount of documents. We're going to look at default rates. And so now we've got lending guidelines and programs that are more homogenous, they're more similar between. So that's one of the reasons why a credit union who's not regulated federally is regulated provincially. They've got the ability to have policy that's more reflective of what the needs of consumers are and what the actual demographics are in their particular lending area.

Kim Taylor (30:59):

Wow, that's great. Okay, great. I mean, this has all been, so talking your ear off. Great. No, thank you so much. Good information. Really good information. I

Monique Cornish (31:10):

Guess I would say if you're looking to get into buy a property and you're waiting, I would suggest that you start looking at some numbers and affordability and revisiting where rates are at today on the fixed side. Because my concern for buyers is that, and to your point earlier, the perception is going to be out there once the Bank of Canada cuts rates and maybe has a few cuts, at least two, let's say. I think there's going to be some momentum that's going to come back in the buying market. And we need that. We know when demand, when demand goes up and there's finite supply, what needs to happen to price, price is going to go north. And so the concern that I would have is if you wait and if you're waiting for rates to go down, there's a good chance that on the flip side of that, you're going to be looking at higher price product.

(32:15):

And if your maximum mortgage dollars are unchanged and the price of product has gone up, now your buying capacity has changed. And so that's tough. So I think I would suggest people get out there, talk to a mortgage broker if they're thinking about getting in and just been sitting in the sidelines and waiting for the Bank of Canada to do something, consider a fixed rate right now and look at the numbers, look at cashflow qualification, make sure you're really comfortable. I think some of the things that certainly brokers will be doing in the future more than they ever have in the past is really consulting with our clients on those who are in a variable rate, and even if it's a low fixed rate, really consulting on, Hey, if your payments went up to this, are you going to be comfortable with this mortgage size still?

(33:08):

And really kind of not just accepting a request for a product and a certain mortgage and just making it happen. I think we're going to be looking and saying, let's look at some scenarios like if NEL scenarios and just making sure that at the end of the day you're comfortable because there's a lot of people who are concerned about renewals. One, I think the federal government said they're concerned about one out of every seven borrowers who are going to have mortgages up for renewal in the next year or so that they're going to be hurting. It's a concern for sure, and it also might be a reason why we are going to see the Bank of Canada make some moves before they may be fully comfortable doing that based on economic factors like inflationary figures, unemployment, that kind of thing. I think there's going to be other pressures just because of the number of mortgage holders whose mortgages are coming up for renewal who are war in fixed rates at 1.5899999999999999%, and they're now looking to renew at five point something percent. Something's got to give.

Polly Reitze (34:18):

Monique, this is great information. Can you explain what mortgage insurance is and when it's required and when it's not required, and does it make a difference on your mortgage payment?

Monique Cornish (34:32):

Yeah. When you say mortgage insurance, I just want to make sure I'm answering the right question. Do you mean mortgage default insurance, so like CMHC insurance, for example?

Polly Reitze (34:42):

Yes. Okay.

Monique Cornish (34:43):

Yes. Okay. So the way it works is if you've got a down payment of less than 20%, then by law, if you're a bank regulated by the federal government, by law, you've got to have the mortgage insured by one of the three national mortgage insurers. One is CMHC, which is what most consumers are familiar with because they do other things as well. And the two other ones are Sage in and Canada guarantee. So there's three national awards insurers. The default insurance premium is based on, it's based on the mortgage loan to value ratio. So if it's 95% financing, the insurance premiums higher than it would be if it was 90% or 85% financing. So that makes a little bit of sense there. If your mortgage is insured, then that insurance premium usually gets added to the mortgage principle and amortized over the 25 years, now, I say 25 years, because if your mortgage needs to be insured, basically, at least right now, this may change because federal government's talking about changes.

(35:52):

But as of now, the maximum amortization for an insured mortgage is 25 years. Once you get 20% down, there's no default insurance that's required anymore, and you're allowed to have a 30 year amortization. So you can imagine that from a borrowing capacity standpoint, if I've got less than 20% down payment, I'm initially at an absolute disadvantage to begin with because I'm only able to have a 25 year amortization over a 30 year. And that's going to impact the one benefit of having an insured mortgage if there was one. Is that the rate of interest for an insured mortgage or what's called an insurable mortgage? But that's maybe beyond the scope of our conversation. The rate of interest is lower than it would be for what we call a conventional mortgage with like a 30 year amortization. So you've got to pay the premium, and that's a cost that gets amortized over the life of the mortgage, but you're going to end up with a slightly lower rate because the insurer takes on the risk of default rather than the lender.

Polly Reitze (36:58):

Interesting. But that's the reason for qualifying that. Yeah,

Monique Cornish (37:01):

You're welcome.

Polly Reitze (37:01):

I get asked that sometimes. I'm like,

Monique Cornish (37:04):

Yeah, it's a good question for sure.

Kim Taylor (37:07):

Okay, amazing. Well, thank you so much for being with us today. Welcome. This has been so informative.

Monique Cornish (37:13):

You're welcome. Thank you. Thank you for having me.

Kim Taylor (37:15):

Yeah. If you have any questions for Monique, then let us know and we can get in touch with her, or you should just get in touch with her yourself. She's amazing. Thank you.

Monique Cornish (37:25):

I'm happy to, same question. Yeah, absolutely. Tri Me is a resource.

Polly Reitze (37:29):

Absolutely.

Monique Cornish (37:30):

Anytime.

Kim Taylor (37:33):

Monique Cornish, everyone That wraps up today's episode. If you enjoyed today's episode, please take a moment to subscribe, leave a review, and share it with a friend. It would mean the world to us.

Polly Reitze (37:44):

If you find this information helpful, please contact Monique directly if you are buying or refinancing your property. Thanks again, Monique. It's been a pleasure.